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How To Do xtabond2: An Introduction to Difference and System GMM in Stata
Abstract
The difference and system generalized method-of-moments estimators, developed by Holtz-Eakin, Newey, and Rosen (1988, Econometrica 56: 1371-1395); Arellano and Bond (1991, Review of Economic Studies 58: 277-297); Arellano and Bover (1995, Journal of Econometrics 68: 29-51); and Blundell and Bond (1998, Journal of Econometrics 87: 115-143), are increasingly popular. Both are general estimators designed for situations with "small T , large N" panels, meaning few time periods and many individuals; independent variables that are not strictly exogenous, meaning they are correlated with past and possibly current realizations of the error; fixed effects; and heteroskedasticity and autocorrelation within individuals. This pedagogic article first introduces linear generalized method of moments. Then it describes how limited time span and potential for fixed effects and endogenous regressors drive the design of the estimators of interest, offering Stata-based examples along the way. Next it describes how to apply these estimators with xtabond2. It also explains how to perform the Arellano-Bond test for autocorrelation in a panel after other Stata commands, using abar. The article concludes with some tips for proper use. Copyright 2009 by StataCorp LP.
... The Hansen test with a p-value above 0.05 does not reject the null hypothesis that instruments are uncorrelated with standard errors, confirming instrument validity in GMM. The Sargan statistic indicates no overidentification across all model estimates with a suggested cutoff value above 0.025 (Roodman, 2006). The number of instruments does not exceed the number of groups (<153). ...
Purpose —This study aims to measure green productivity in the agricultural sector,specifically on Sumatra Island, with some driving factorssuch as green lending fromrural banks (both conventional and Sharīʿah), digitalisation,and the intermediation of financial literacy.Design/Methodology/Approach —The study employspanel data from 154 regencies on Sumatra Island for the period 2018 to 2022. Data Envelopment Analysis was employed to generate agricultural green total factor productivity, followed by regression estimation to see the influence of each determining factor.Findings —This study reveals the significant impact of green lending on green productivity. However, in Sharīʿahrural banks, which adhere strictly to Sharīʿahrules, this impact is positive only when moderated by financial literacy. On the other hand, digitalisation is also found to influence green productivity,but the effect weakened when the level of financial literacy could not be controlled.Originality/Value —To the best of the author’sknowledge, this study is the first toobserve green productivity in the agricultural sector within a dual economic systemthat fosters both Islamicand conventionalfinancial practices atthe regional level.Practical Implications —This study implies that governments and banks should integrate green lending and digitalisation across various levels of financial literacy.
... The utilization of the System GMM estimator has enabled us to circumvent various issues that commonly arise in econometric analysis, such as (Roodman, 2009;Kapil & Kumar, 2023): the presence of fixed effects, heteroskedasticity and autocorrelation within individuals, the endogeneity of control variables, as well as the possible omission of variables that persist over time. To ensure the reliability and consistency of our econometric analysis, we have employed two diagnostic tests to evaluate the System GMM estimation. ...
This study investigates the spatial and temporal dynamics of housing prices in Serbia, addressing the critical need to understand the drivers of real estate prices and their implications for economic and social welfare. Employing a panel data analysis approach on a unique dataset covering 24 distinct urban areas in Serbia from 2011 to 2021, we examine the relevance of diverse economic, demographic, and infrastructural indicators, providing novel insights within a developing country context. Our findings reveal that the housing market stock-flow model effectively predicts housing price appreciation trends, explaining over 60 percent of variation in property prices. Notably, disparities in labour income, captured by average wages and registered employment rates, emerge as significant determinants of real estate prices, underlining socio-economic disparities within Serbian cities. Housing prices exhibit a positive response to the population/housing stock ratio, suggesting higher prices in cities experiencing faster population growth relative to housing supply. Intensified construction is associated with elevated housing prices. Additionally, we find positive association between the inflation variable and housing prices, underlining real estate’s potential as an inflation hedge. Public service provision and infrastructural amenities also emerge as contributors to higher housing prices in urban areas, emphasizing the importance of comprehensive urban planning strategies. Our study contributes to the literature by providing specific quantitative evidence, advancing the understanding of urban housing market dynamics in developing countries. By offering nuanced insights into determinants of housing prices, our research informs policymakers and urban planners seeking to foster equitable and sustainable urban development strategies.
... The key difference between these approaches lies in the fact that instead of drawing assumptions about an entire distribution, the sGMM focuses on the specific moments (called moment conditions) of the random variables. Moreover, this approach is particularly effective when there is a large N and short T scenario (Blundell & Bond, 1998;Roodman, 2009). ...
This study examines whether forcing banks to hold subordinated debt and enforcing market discipline could enhance the effectiveness of capital macroprudential policies in reducing banks' risk and contribute to bank stability. Using the system generalised method of moments and based on a sample of 322 banks across 18 countries during the period 2006–2020, we find that a higher level of subordinated debt leads banks to avoid moral-hazard behaviours and engage in risk shifting when adapting to a tighter macroprudential framework, which in turn leads to a greater effectiveness of these policies. Furthermore, as robustness tests, we show that this effect is stronger in advanced economies and in the United States of America. These results also stand using a different proxy for banks' risk.
... However, Arellano and Bond (1991), Arellano-Bover (1995) and Blundell and Bond (1998) introduced the Generalized Method of Moments estimator (GMM), utilizing a comparable set of internal instruments which is more efficient compared to the Anderson and Hsiao (1981) estimator (Arellano & Bond, 1991;Arellano & Bover, 1995;Blundell & Bond, 1998). Therefore, to address the endogeneity issue, the study adopted the two-step system GMM (2SYSGMM) estimator for equation (21) following the approach by (Roodman, 2006). The effectiveness of the 2SYSGMM estimator is based on the validity and reliability of the instruments utilized. ...
Kenya has adopted an export-led manufacturing industrialization strategy as envisaged by many policy documents including the Kenya Vision 2030 which aimed at increasing the manufacturing share in Gross Domestic Product to 15 per cent by 2022. The share of manufactured exports in all exports was targeted at 60 per cent by 2022 as per the National Exports Development and Promotion Strategy. However, manufacturing sector’s productivity has been declining as demonstrated by its economic contribution which has averaged around 10 per cent from 2007 to 2022 and has persistently declined from 12.79 per cent in 2007 to 7.83 per cent in 2022 pointing towards premature deindustrialization. Besides, from 2007 to 2022, the share of total exports made up of manufactured goods averaged 33 per cent. The study aimed to estimate firms’ total factor productivity (TFP) and examine the impact of export activity on firms’ TFP in Kenya’s manufacturing industry. Firm TFP was computed utilizing the Levinsohn and Petrin (2003) technique. The study employed Propensity Score Matching and a dynamic panel model estimated using the generalized methods of moments technique, to analyze the effect of exporting on firms TFP. Export intensity, labor productivity and management experience had positive effects on firm’s TFP. However, firm size and capital intensity had negative effects on TFP. Based on the study findings, the government should emphasize on export promotion policies as well as adoption of labor intensive technologies in Kenya’s manufacturing sector.
... The system GMM combines the regression in differences with the regression at levels in a system in which the two equations are instrumented separately (Arellano & Bond, 1998;Arellano & Bover, 1995). First, the system GMM does not suffer the problem of amplifying gaps originating from imbalanced panels, thus, the approach is resilient to problems related to unbalanced panels (Roodman, 2009). Second, it takes care of country-specific effects. ...
The study investigates the effect of FinTech on financial inclusion in Southern African Development Community (SADC) member states over the period 2011–2021, while also looking at the transmission channels. The study adopts a battery of econometric techniques such as ordinary least squares (OLS), the two‐step system generalized method of moments (GMM) and the Driscoll and Kraay covariance estimator. The study finds that FinTech (proxied by digitization) deepens financial inclusion (access to loan) and a decline in the number of bank branches in SADC member states. This is logical since the operations of FinTech are digital. This implies that an attempt to promote financial inclusion by traditional means such as building physical bank structures may be limited, especially in Africa where large swathes of the populace remain unbanked. As expected, FinTech (measured by automated teller machines [ATMs]) increases the number of bank branches in SADC. We also find that mobile cellular subscription, the share of population with access to electricity and Internet access and mean years of schooling are important transmission channels of FinTech to financial inclusion in SADC. In general, the result shows that FinTech enhances and deepens financial inclusion in SADC member states. The research and policy implications are discussed.
... chi-square of the Breusch-Pagan test is greater than 0.05. Moreover, Table 6 demonstrates that the models are free from autocorrelation; the Durbin-Wats-stat is between 1 and 2. In addition, the study used generalized method of moments (GMM) estimations which account for heteroscedasticity and autocorrelation (Roodman, 2006). Furthermore, using a GMM estimate model tackles endogeneity issues. ...
The main aim of this study is to explore corporate social responsibility expenditure in Indian manufacturing firms. The study sample consists of 62 firms listed on the Bombay Stock Exchange (BSE). Findings revealed that environment and pollution control expenses vary significantly between mature and young firms and before and after the pandemic as well. Moreover, regression analysis results show that employee compensation expenses negatively affect firms’ performance. these results contradict Nwanne (2016), Walker (2019), and Tulcanaza-Prieto et al. (2020). Similarly, social and community expenses negatively and significantly impact the performance of Indian manufacturing firms. These results consist with Gangi et al. (2018), Tulcanaza Prieto et al. (2020), Kvasić et al. (2016), and Nwanne (2016). On the contrary, donation-related expenses positively affect the profitability of Indian manufacturing firms. These results are consistent with Nwanne (2016), and Gangi et al. (2018). Therefore, this study has three folds of contributions. Firstly, it attempts to unveil corporate social responsibility (CSR) expenditures after the Companies Act, 2013 using a large sample and a longer period of study and making a comparison between mature and young firms Indian manufacturing companies. Secondly, this study examines the impact of the COVID-19 pandemic on CSR expenditures. Finally, hardly any study has relied on secondary data for conducting sustainability or CSR expenditure research in the Indian context. Hence, this study addresses this void by relying on secondary data to examine CSR expenditures during the pandemic.
... We apply the system Generalized Method of Moments (GMM) estimation in order to address fundamental econometric issues such as the persistence of the outcome estimated variable, heteroskedasticity, endogeneity and unobserved heterogeneity. This panel econometric estimator permits the utilization of the exogenous regressors in the form of instrumental variables and lagged values of the dependent variable to control the problem of endogeneity, providing in this way more consistent and unbiased estimates than the traditional static panel estimators such as the OLS, fixed or/and random effects models (Wooldridge, 2010;Roodman, 2006;Windmeijer, 2005;Cameron & Trivedi, 2005). The system GMM specification, proposed by Blundell and Bond (Blundell & Bond, 1998), deploys moment conditions by combining the lagged first-differences of the regressors which are used as instruments for the level estimator of Arellano and Bover (Arellano & Bover, 1995) in addition with the appropriate lagged levels of regressors as instruments in the first-difference model estimator of Arellano and Bond (Arellano & Bond, 1991;Baltagi, 2013;Xu et al., 2011). ...
... Regarding variables that display a "random walk" or are near random-walk variables, the System GMM estimate is likewise superior to the Difference GMM (Baum, 2006;Bond, 2002;Roodman, 2007). Roodman (2006) recommends against using Difference GMM estimate since it has a flaw that makes gaps more noticeable when applied to unbalanced panels. The general form of the system GMM model is presented as. ...
In this study, we investigated the impact of institutional quality on private and public investments in sub-Saharan Africa (SSA) using a sample of forty-one (41) countries between 2002–2021 using a system GMM. Using seven proxies of institutional variables, the results showed that all the institutional proxies had a positive and significant effect on private investment and a negative effect on public investment. We argued that higher institutional quality reduced the costs of doing business, increased investor confidence in the economy, and that property rights enforcement and the legal system increased the attractiveness of private investment in the region. Conversely, for public investment, we argued that better institutional quality exposed the inefficiency of the sector as they were mostly used for rent-seeking and perpetrate corruption, and as such reduced public investment. The results were also robust to different measures of institutions and governance indicators. We recommended that SSA governments improve project oversight and accountability, reduce corruption, promote transparency and citizen participation, strengthen anti-corruption measures, and invest in infrastructure through public-private partnerships in order to improve efficiency in the public sector. Also, governments must ensure lower lending rates, improve the efficiency of credit markets, and ensure better institutional indicators in order to increase private investment.
... In order to avoid the issue of excess instruments, the proliferation of instruments was limited, thus creating an instrument for each control variable instead of one instrument for each period and variable. This ensures that information is not lost and produces better results (Roodman, 2006). ...
Purpose: This article aims to examine the influence of life cycle stages on the corporate decisions of Brazilian firms. Originality/value: The study contributes by presenting a scenario of investment, financing, dividend, and cash decisions, revealing patterns and characteristics of the evolution of Brazilian firms throughout their life cycle stages. For this, we tested an alternative life cycle proxy capable of classifying firms in different stages, even shake-out and decline, not defined by the model of Dickinson (2011), and applied a more robust methodology (GMM-SYS) considering potential endogeneity problems disregarded by previous studies. Design/methodology/approach: The sample consists of 203 traded firms listed on B3 from 2010 to 2018. We collected the data from the Thomson Reuters Eikon database. We estimated the parameters of the models by GMM-SYS (Generalized Method of Moments) to mitigate problems of endogeneity, omitted variables, and heterogeneity. Findings: As our main results, we have that Brazilian firms do not follow a pattern and oscillate between stages and that there is strong evidence of the effect of the life cycle on corporate decisions. In the introduction and growth stages, firms invest more, have more debt, pay fewer dividends, and have greater cash availability. In the mature stage, investments, debts, and the level of cash are lower. In the shake-out stage, no results were significant, requiring further studies to better explore this stage in developing countries, such as Brazil.
... Instead of drawing assumptions about the entire distribution, this model focuses on the specific moments (called moment conditions) of the random variables. This approach is particularly effective when there is a large N and short T scenario (Blundell & Bond, 1998;Roodman, 2009). ...
This study examines the effectiveness of macroprudential policies in reducing the banks' risk during the COVID‐19 pandemic and compares these results with the systemic banking crises years. Based on a sample of 624 banks across 40 countries during the period 2006–2020, we find that loosening capital‐aimed macroprudential policies effectively reduced banks' risk during the COVID‐19 pandemic, while this behavior led to increased risk during the systemic crises years. In contrast, tightening the remaining macroprudential policies during the systemic crises years and during the pandemic proved effective in reducing banks' risk. Furthermore, we show that the magnitude of the impact of macroprudential policies was stronger during the systemic crisis than that during the pandemic. Finally, we show that the results are driven by the capital requirement prudential policy, both during the systemic crisis and the COVID‐19 pandemic, although the conservation buffer and the leverage limit also contributes to the ineffectiveness of these policies during the COVID‐19 pandemic. The banks' leverage and loan growth also play an enhancing role of the effects of the macroprudential policies.
... However, this estimator faces the issue of instruments proliferation. In order to contain this weakness, Roodman (2009) recommends specifying the model in such a way that the number of instruments does not exceed the number of countries. Similarly, for all our estimates, the standard errors are obtained via the correction proposed by Windmeijer (2005) for small sample. ...
... Blundell and Bond [64] argue that SGMM provides more consistent and efficient estimators than DGMM because the former can reduce biases and inefficiencies in DGMM. Besides, SGMM is a better option than DGMM because the latter performs poorly in the presence of missing values in the data set [65]. Following Blundell and Bond [64], we derive the moment condition for SGMM as follows: ...
The textile sector is a significant exporting sector of Pakistan. This study examines the determinants of the export performance of Pakistani textile firms using firm-level panel data from 2008 to 2018. Under the framework of the dynamic System Generalized Method of Moment (SGMM) methodology, our findings suggest that both sunk costs and firm-specific characteristics like productivity, age, and size are important determinants of textile exports. Further, the study also observes that firms with a high number of export destinations and greater product diversification tend to export more. The year-specific dummies reveal that textile export performance is adversely affected by the energy crisis in 2012. We recommend that Pakistan should support large, experienced, and productive textile exporter firms to boost textile exports. Besides, more assistance should be provided regarding potential overseas markets to the existing and new export firms.
... This implies that the difference-GMM estimate is downward biased because of weak instrumentation and the system-GMM is preferred. System-GMM estimator is asymptotically efficient and robust to heteroskedasticity associated with serial correlation and autocorrelation since system-GMM assumes that differences are not correlated with the unobserved country effects (Ezeoha et al., 2015 andCoban andTopcu, 2013;Roodman, 2009aRoodman, , 2009bBond, 2002). We also use Windmeijer-corrected cluster robust errors to correct for the presence of cluster correlation. ...
THE IMPACTS OF CLIMATE CHANGE ON CROP PRODUCTION IN NIGERIA
Benjamin Anabaraonye1 Chioma Ajator2 Victor Otti 3 Beatrice. O. Ewa4 Precious. C.
Anthony5
1. Institute of Climate Change Studies, Energy and Environment, University of Nigeria, Nsukka.
2. Department of Community Medicine, NAUTH Nnewi, Anambra State, Nigeria.
3. Department of Civil Engineering [Water Resources & Environmental], Federal Polytechnic,
Oko, Anambra State, Nigeria.
4. Institute of Climate Change Studies, Energy and Environment, University of Nigeria, Nsukka,
Nigeria.
5. Department of Agricultural economics and extension, Faculty of Agriculture, Chukwuemeka
Odumegwu Ojukwu University, Igbariam campus, Anambra State, Nigeria.
Abstract: Climate change is an environmental challenge that is presently affecting
communities, cities, countries, and continents. The impacts of climate change are greatly felt on
Nigeria’s agricultural sector which profoundly affects crop production. The impacts of climate
change on crop production in Nigeria require urgent actions to be taken by farmers, educators,
government agencies, and non-governmental organizations to stop global warming too unbearable
for mankind and to achieve sustainable economic growth in Nigeria. This study seeks to draw the
attention of policymakers in government, private sectors, non-governmental organizations, and
farmers who are actively involved in crop production in Nigeria to the impacts of climate change
and ways to adapt and mitigate effectively. Through our literature review, It has been discovered
that climate change impacts on crop production affect the health, economic and agricultural sectors
of the nation in a profound way. This study, therefore, identifies the need for climate change
education among farmers both in rural and urban areas in Nigeria to enhance their effectiveness
and efficiency in crop production for sustainable economic growth in Nigeria. It also identifies the
innovative tools which can be used in educating and equipping the farmers both in rural and urban
areas in Nigeria for sustainability locally, nationally, and globally.
Keywords: Adaptation, Climate Change, Crop Production, Mitigation, Sustainable
Development.
... panel estimator. The number of instruments is lower than the number of groups in the models suggesting no problem of instrument proliferation (Roodman, 2009). The insignificant value for AR (2 or 3) shows that there exists no issue of second or third order serial autocorrelation. ...
Banks focus on digital transformation to improve their overall efficiency and reduce operational costs. In this study, we argue that banks focusing on diversification might not benefit from digital transformation in context of stability. Precisely, this study explores the impact of digital transformation on banks' stability while considering diversification as an important factor. Overall, the results suggest that investment in technology and increased diversification makes banks riskier and more fragile. More importantly, we report digital transformation and the diversification to be substitutes in impacting the stability. In other words, we show digital transformation is beneficial for banks with low-income diversification. The reported findings have implications.
... environmental sustainability in Asian economies. Three are three principal reasons to employ this technique for present analysis: First, the number of countries (N) is higher than the number of time period (T) (Roodman 2009), and this condition is satisfied in present case (N = 30 > T = 15). Second, system GMM estimators suggested by Blundell and Bond (1998) are used for present analysis because difference GMM estimator proposed by Arellano and Bover (1995) produced biased estimates in the case of small sample (Baltagi 2008). ...
This research is an endeavor to improve the literature on information and communication technology (ICT)-financial development-environmental sustainability nexus by conducting an aggregated and disaggregated analysis on the role of financial development and technological progress in attaining a sustainable environment. By employing a unique and comprehensive set of financial development and ICT indicators, this study offers an in-depth analysis of the role of financial development, ICT, and especially their interactions in maintaining environmental sustainability in 30 Asian economies from 2006 to 2020. Results from the two-step system generalized method of moments indicate that separately, both financial development and ICT are detrimental but together, their joint effects are beneficial to the environment. Several policy implications and recommendations are made to help policymakers to craft, design, and implement appropriate policies to improve environmental quality.
This study explores how banks in the Turkish banking system design their asset and equity structures in return for monetary policy changes. In this context, between the periods of 2010-2020, we estimate bank leverage and liquidity with multiple monetary policy indicators and by employing two econometric models of static and dynamic panels. According to the results, banks reply to monetary expansion by picking up their leverage ratios on the liability part. On the other hand, banks reply to monetary expansion by enhancing their liquidity positions on the asset part. Also, the originality of our empirical study comes from that; this is the first attempt to evaluate the effects of monetary policy changes simultaneously on both sides of bank balance sheets’ in Türkiye.
Corporate political activity (CPA) research has traditionally focused on instrumental and strategic value, explicitly ignoring how external stakeholders, specifically the public, view the legitimacy implications of CPA, in particular with regard to partisan forms of CPA. Yet, recent research has begun introducing normative considerations into CPA, highlighting the impact of public evaluations on CPA, and partisan CPA, in particular. Focusing on normative affective legitimacy, as proxied by the tone of mass-media reporting rhetoric, this study explores the effect of firm and CEO partisan political contributions on corporate affective legitimacy. Utilizing three types of dynamic panel data analyses on S&P 500 firms over 20 years, the study provides consistent evidence that both firm-level and CEO-level partisan political action committee contributions are negatively associated with affective-based corporate legitimacy. Post hoc analyses reveal that in response to affective-legitimacy evaluations, firms reduce firm-level partisan political contributions and lobbying expenditures, but not other forms of CPA or partisan CPA. The study also finds that state-level public political polarization moderates the association between CEO partisan contributions and firms’ affective-legitimacy evaluations. This study is the first to systematically document the negative normative impact of CPA and partisan CPA. It strongly informs CPA theory and has practical implications for executives’ use of partisan CPA.
Through the 2030 Agenda, international bodies have set out 17 highly interconnected Sustainable Development Goals (SDGs) to set course for the equitable and just development of society. SDG5 seeks to empower women and girls as a way of guaranteeing their fundamental rights, which are sometimes violated by the physical superiority of men who exercise their power by undermining women's freedoms. This study aims to analyse the connection between SDG1, SDG3, SDG8 and SDG11, and the protection of women, identifying the lines of action needed to favour access to justice for victims of gender‐based violence. The study was carried out on a panel sample of the 17 Spanish Autonomous Regions over a decade (2012–2021), using the generalised method of moments, specifically the xtabond2 estimator. Development was carried out in two stages: (1) the measures implemented by the Spanish authorities and the quality of life of the population were analysed, (2) six representative dimensions of quality of life associated with different targets of the SDGs were studied. Both scenarios were designed with the common objective of determining their impact on reporting to the police. The results show the need to reinforce protection orders, as well as to put in place the necessary measures to improve women's quality of life in order to attain a violence‐free society. Specifically, education, economic stability, mental and physical health, and work must be enhanced. In short, socio‐economic policies should be oriented towards the creation of a climate of security that favours access to justice for battered women.
The study compares Sustainability Reporting (SR) and Financial Performance of listed Consumer and Industrial Goods Companies. Financial reports from 14 Consumer and 8 Industrial Goods Companies from 2012-2021 were used. Descriptive and Two-step System GMM were used for analysis. The study found that Consumer Goods Companies are more Socially transparent than Industrial Goods Companies. Consumer Goods Companies disclose less environmental information than
Industrial Goods Companies. Both sectors exhibit transparency in
reporting economic sustainability information. Importantly, the study found no significant SR effect on these Industries' Financial Performance proxies of ROE and EVA. To help firms in both industries generate consistent and comparable SR disclosures by
giving explicit content and presentation guidance, Nigerian
Exchange Limited should adopt industry-specific SR guidelines.
Also, Sustainability activities should be linked to company strategy, as alignment boosts performance by boosting operational efficiency, risk reduction, and market expansion.
Countries around the world have shown concerns towards the sustainability aspects of the firms for their long-term growth and survival. The representation of women directors on board is often looked as a positive sign for improving various governance related aspects. Based on this premise, the study investigated the relationship between gender diversity on board and sustainability reporting using a sample of 220 firms for a period of 5 years (2018–2022). The study used rigorous framework based on ESG scores developed by CRISIL to measure the sustainability reporting in the Indian context. The analysis was conducted with the help of dynamic panel data regression models, and it was found that gender diversity positively impacts corporate sustainability disclosure. The study is unique in the context of India which is an emerging economy and provides valuable suggestions for improving the governance and sustainability practices by firms in India.
Purpose
The unsustainable public debt of most African economies adversely affects their economic growth and stability. This study aims to explore the influence of cross-country indicators of governance from African countries on public debt accumulation.
Design/methodology/approach
The study deployed a quantitative research design technique. Secondary data was used in this study. The frequency of the data is annual, and it is available from 1996 to 2022 for 48 countries in Africa. The study deployed the system generalized method of moments for the estimation.
Findings
The study finds that countries with high regulatory quality standards, control corruption and ensure effective governance accumulate less government debt while countries that abide by the rule of law instead accumulate more government debt. The study also finds that economic growth and government revenue reduce government gross debt while government expenditure and investments increase public debt.
Research limitations/implications
Due to data unavailability, other factors which are likely to influence government debt accumulation were not included in the study as control variables. This is the limitation of the study.
Social implications
African governments should strive to maintain high regulatory quality standards through the formulation and implementation of sound policies and regulations that permit and promote private sector development, and ensure quality and accountability of public and civil services. Governments are also urged to control corruption and enact good laws so that the enforcement of these laws will not worsen the risk of becoming debt-distressed.
Originality/value
Recent studies on governance and public debt were focused on the Arabian Gulf countries, countries of the Middle East and North Africa (MENA) region and a combination of high and low-income countries. This study scrutinizes exclusively the effects of the quality of governance indicators on public debt accumulation, in the context of Africa.
Ülkeler için ekonomik büyüme kavramı hayati bir öneme sahiptir. Bir ülkenin ekonomik yapısı o ülkenin gelişmişliğiyle ilgili bilgi edinilmesini sağlamaktadır. Ülkelerin gelişmişlik seviyeleri belirlenirken ekonomik yapının haricinde çeşitli sosyo-kültürel, coğrafi ve demografik etmenlerde araştırılır. Ekonomik büyüme ve demokrasi kavramları da ülkelerin gelişmişlik seviyesini etkileyen unsurlardır. Demokratik bir şekilde oluşturulan etkili kurumsal yapı, politik haklar, sivil ve ekonomik serbestlikler ekonomik büyümenin sağlanmasında önem arz etmektedir. Ekonomik büyümenin hız kazanması sonucunda demokrasinin etkili bir rolü olduğu gibi, demokrasi seviyesinin artmasında ekonomik büyümenin de ayrı bir önemi bulunmaktadır. Bu çalışmanın amacı, ekonomik büyümenin demokrasi üzerindeki etkilerini OECD üyesi ülkeler için dinamik panel veri analizi yöntemiyle incelemektir. Çalışma kapsamında OECD üyesi ülkeler ele alınarak 2006-2020 dönemleri için dinamik panel veri analizi yöntemi uygulanmıştır. Analiz kapsamında, Genelleştirilmiş Momentler Metodu (GMM), GMM robust(dirençli hata) ve sistem GMM robust (dirençli hata) tekniklerinden yararlanılmıştır. Analiz sonucunda, ekonomik büyüme, dış ticaret ve finansal gelişmenin demokrasi üzerinde istatistiksel olarak pozitif etki yarattığına ulaşılmıştır.
The current rising levels of public debt among African countries require that African governments understand how the short- and medium-term sustainability of fiscal policy influences public debt accumulation. This study, therefore, tries to find out how cross‐country sustainability of fiscal policy has affected the accumulation of public debt among African countries. Secondary panel data spanning from 1996 to 2022 for 36 countries in Africa were used in this study. Using the system generalized method of moments estimating technique, while controlling for other variables, the study finds that the implementation of the short- and medium-term sustainable fiscal policy will result in a substantial reduction of public debt among African countries. It is recommended that governments formulate and implement sound, relevant, and sustainable fiscal policies to prevent excessive public debt accumulation in their various countries. Specifically, governments are encouraged to formulate prudent policies to manage the primary balance very well to ensure the sustainability of the public finances.
In recent years, the provision of government services through electronic platforms has significantly increased due to the rapid development of digital technologies. The significant shift in digital governance is expected to have an effect on key macroeconomic variables through its speed, efficiency, and convenience. Therefore, this study empirically evaluates the effects of e-government development on foreign direct investment inflows by targeting sub-Saharan African (SSA) countries. The study covers the panel data of periods 2003-2022 for 44 SSA countries. The data were analyzed using both descriptive and econometric techniques with STATA 17 software. According to the System GMM model used in the study, e-government is a significant factor that positively affects FDI inflows, and scale neutral that significantly benefits both less growing and more growing economies. Furthermore, the result from threshold analysis shows that the positive effect of e-government on FDI inflows is influenced by the development of telecommunication infrastructure. The key insight for policy arising from this paper is that in addition to the macroeconomic factors, FDI inflows are affected by digital transformation and technology-augmented government services. Therefore, development interventions should emphasize the improvement of such institutional and technological systems to enhance FDI inflows to the region.
The purpose of this paper is to evaluate the efficiency of Active Labor Market Policies (ALMP) expenditures of OECD countries taking into account the institutional quality of governance. The emphasis is on the quality of governance that affects the supply and demand of employment and the ability of governments to master public spending. Using the general method of moments (GMM) for 31 OECD countries over the 2000/2020 period, we show that measures of institutional quality such as Control of Corruption, the Effectiveness of Governance and the Regulatory Quality affects significantly the efficiency of ALMP on unemployment rate. This result is found consistent using Institutional Quality Index ‘IQI’. The influence of institutional quality on the link between ALMP expenditure and unemployment rate suggest the importance for policy makers to enhance institutional quality. They consider it as a possible instrument for improvement results in labor market of OECD countries.
The properties of classical panel data estimators including fixed effect, first-differences, random effects, and generalized method of moments-instrumental variables estimators in both static as well as dynamic panel data models are investigated under sample selection. The correlation of the unobserved errors is shown not to be sufficient for the inconsistency of these estimators. A necessary condition for this to arise is the presence of common (and/or non-independent) non-deterministic covariates in the selection and outcome equations. When both equations do
not have covariates in common and independent of each other, the fixed effects, and random effects estimators in static models with exogenous covariates are consistent. Furthermore, the first-differenced generalized method of moments estimator uncorrected for sample selection as well as the instrumental variables estimator uncorrected for sample selection are both consistent for autoregressive models even with endogenous covariates. The same results hold when both equations have no covariates in common but are correlated once we account for such correlation. Under the same circumstances, the system generalized method of moments estimator adding more moments from the levels equation has moderate bias. Alternatively, when both equations have common covariates the appropriate correction method is suggested. Serial correlation of the errors being a key determinant for that choice. The finite sample properties of the proposed estimators are evaluated using a Monte Carlo study. Two empirical illustrations are provided.
Over the years, studies have focused on the implications of institutional quality as a key factor of FDI inflows into Africa and how it influences the economic processes of various African countries. However, in the studies on Africa, investors’ motivations as determinants of foreign direct investment inflows into African regions are grossly understudied and yet determined. As a result, there is a need to investigate the impact of FDI inflows on African countries, as well as the implications of home and host country investment phenomena. The study employs ex-post-facto research using panel data obtained from different World Bank publications; world development indicators, and the Transparency Index database from 1997 to 2022. The System Generalized Method of Moments (SGMM) was used to examine the data. The results reveal that governance and investor motivations have a negative impact on each other; the effect of the interacted variables is less than the total of the impacts of governance and investor motivations separately. Therefore, FDI in the selecte3d African countries will decline by 7.5 points for every unit increase in the level of poor governance and investor motivations, and this validates the locational assumption of John Dunning Eclectic Paradigm with the proposition that FDI inflows is a function of the home and host investment phenomena As a result, we recommend that African governments implement Regulatory reform, market reform, complete streets policies, and contingency-based planning that are FDI inflow induced.
İktisat literatürü, teknolojik yeniliklerin ekonomik büyüme üzerinde katalizör etkisine sahip olduğu konusunda fikir birliği içerisindedir. Buna karşın, teknolojik yeniliklerin işsizlik üzerine etkileri konusunda tartışmalar devam etmektedir. Bu çalışmada; yükselen piyasa ekonomilerindeki teknolojik gelişimin, işsizlik üzerindeki etkisi incelenmiştir. Yükselen piyasa ekonomileri, gelişmekte olan ülkeler grubu içerisinde yer almasına karşın, bazı nitelikler nedeniyle gelişmiş ülkelere benzemektedirler. Yüksek ekonomik büyüme performansına sahip bu gruptaki ülkelerde, aynı zamanda yüksek işsizlik ile mücadele etmektedir. Çalışmanın bulgularına göre; yükselen piyasa ekonomilerinde teknolojik gelişim ile işsizlik arasında negatif ilişki tespit edilmiştir. İlişkinin negatif yönde olduğu fakat kuvvetinin zayıf olduğu görülmüştür.
Given the importance of international trade, we empirically investigate the impact of information and communication technologies on the exports, imports, and total trade of five service items by using a panel data for 19 MENA countries from 2005 to 2019. Unlike most previous studies, we use the Information and Communication Technologies Development Index, which is a composite index that combines 11 indicators that include the access, use, and skill aspects of the technology. The results are as follows: the Information and Communication Technologies Development Index has a negative and statistically significant effect on exports of information technology services, and a positive and statistically significant effect on imports and total trade in financial services. Furthermore, we found also that the Information and Communication Technologies access sub-index has a significant effect on total trade in information technology services and transport. For the Information and Communication Technologies use sub-index, its effect on imports of travel services and exports of both travel and information technology services is significant. It also has a significant positive effect on total trade in travel and information technology services. As for the Information and Communication Technologies skills sub-index, the results show that it has significant positive effects on total trade in IT services and travel, and a negative significant effect on transport. These results provide interesting policy insights for information and communication technologies development and the growth of services trade for policy makers.
The economics of crime deals with two issues: (i) the economic cost of the crime, and (ii) the economic motivations behind the crime that is committed by individuals. In this context, crime is distinguished by whether it has an economic characteristic or not. Economic crimes can be defined as non-violent crimes committed to gain profit, benefit, or social status. Understanding the dynamics of crime is crucial for policy-making to minimize the economic and social costs to society. In the last decade, the total amount of crime has been increasing continuously in Türkiye. The economic crimes accounted for approximately 60 % of total crimes until 2012. In the later years, the rate of other crimes (particularly, assault, threat, and traffic crimes) in total crimes have surpassed economic crimes, nonetheless, the number of economic crimes has also been increasing gradually and peaked in 2018. Moreover, economic crimes show regional differences in Türkiye, and revealing these disparities may provide useful insights to policymakers. Therefore, the examination of the dynamics of economic crimes at the regional level and its relationship with economic variables in Türkiye seems to be timely and important. We collect a broad economic crime data of 26 sub-regions for the 2006-2020 period. We first analyze the regional differences in property and fraud by utilizing the mapping method. We also tried to reveal the link between income, unemployment, and education level with property and fraud with dynamic panel methodology and revealed that variables have different effects on different economic crimes.
Demokratikleşme sürecinin ve finansal piyasalardaki gelişimin iktisadi büyümeyi destekleyip desteklemediğine dair tartışmalar her dönem tartışılan konular arasında yer almıştır. Bu bağlamda çalışma, Avrupa Birliği (AB) ülkelerinde demokratik ve finansal gelişme seviyesi ile iktisadi büyüme arasındaki ilişkiyi analiz etmek amacıyla gerçekleştirilmiştir. Çalışma kapsamında 27 AB ülkesine yönelik olarak; demokratik gelişme seviyesi ile iktisadi büyüme arasındaki ilişki 2010-2020 dönemi için, finansal gelişme ile iktisadi büyüme arasındaki ilişki ise 2002-2020 dönemi için analiz edilmiştir. Dinamik panel veri analiz yöntemlerinden Fark GMM ve Sistem GMM metodlarının kullanıldığı çalışmada yıllık veriler kullanılmıştır. Analiz bulgularına göre; AB’de iktisadi büyüme ile demokratik gelişmişlik seviyesi arasında çift yönlü negatif bir ilişki mevcuttur. Ayrıca, iktisadi büyüme finansal gelişmişlik seviyesini pozitif, finansal gelişmişlik ise iktisadi büyümeyi negatif etkilemektedir.
Our model indicates that European firms across all size categories use trade credits to purchase 6%–15% of tangible fixed assets and 14%–30% of intangible assets in the short-run. A long-run target adjustment model shows that large firms eventually replace most of this temporary trade credit financing with cheaper sources of funds. However, even in the long-run, small firms finance 4%–6% of tangible fixed asset purchases and 5%–10% of intangible fixed asset purchases using trade credit. Since smaller firms do not have the same access to bank credit as larger firms, trade credit is used to fund long-term investments Trade credit is therefore a key component in the capital structure decisions of smaller firms and it should be included in their weighted-average cost of capital calculations.
Broadening access to finance is among the top priorities for governments and international development organizations worldwide. This study examines the impact of natural resource rents on access to finance in financial institutions and financial markets across 109 countries from 1996 to 2020. The results of dynamic two-step system generalized method of moments estimation demonstrate that total natural resource rents hinder access to finance in financial institutions and markets, confirming the natural resource curse hypothesis. Specifically, rents from oil, coal, minerals, and forests negatively affect access to finance in financial institutions and markets, while gas rent has surprisingly a positive effect on both. Furthermore, institutional quality significantly promotes access to finance in financial institutions and markets. All aspects of institutional quality (control of corruption, government effectiveness, political stability, regulatory quality, rule of law, and voice and accountability) positively affect access to finance except regulatory quality, which has an insignificant effect on access to finance in financial institutions. Moreover, our findings show that institutional quality significantly moderates the effect of natural resource rents on access to finance, specifically, it varies depending on whether the institutions are strong or weak, being positive in the former case and negative in the latter. The study conducts several robustness tests using additional controls, alternative measures of financial access, and sample sensitivity analysis, all of which confirm the findings. Finally, we suggest policy implications for relevant stakeholders.
Purpose
Sub-Saharan Africa (SSA) is regarded as a region with one of the worst cases of armed conflict and climate risk. This paper examines the interactive effect of armed conflict and climate risk on gender vulnerability in SSA.
Design/methodology/approach
The difference and system generalised method of movement (GMM) were used to examine the relationship between the variables using annualised data of 35 SSA countries from 1998 to 2019.
Findings
The paper found strong evidence that armed conflict and climate change are positive predictors of gender vulnerability. The impact of climate change on gender vulnerability is found to be more direct than indirect.
Practical implications
The direct and indirect positive effect of armed conflict and climate change on gender vulnerability implies that climate change drives gender vulnerability through multiple channels. This underscores the need for a multi-disciplinary policy approach to addressing gender vulnerability problem in SSA.
Originality/value
The study contributes to the climate action debate by highlighting the need for climate action to incorporate gender inclusive policies such as massive investment in infrastructure and safety nets that offer protection to the most vulnerable girls and women affected by armed conflict and climate change. Societies should as a matter of urgency strive to structural barriers that predispose girls and women to biodiversity loss.
Peer review
The peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-09-2022-0595
This paper examines the relationship between female entrepreneurship and environmental implications in ASEAN economies. While economic growth and affluence benefit society, they come at the cost of environmental degradation, particularly rising carbon dioxide levels and ecosystem concerns. Women entrepreneurs in Southeast Asia can potentially support their families and contribute to societal development by starting their own businesses. Their ventures provide fresh perspectives on societal challenges and enable active participation and contribution to creative endeavors, leading to economic and social empowerment with ripple effects on families and communities. To assess the environmental consequences of women’s entrepreneurial activities, the study applies the bias-corrected method of moments and tests the Environmental Kuznets Curve hypothesis across ten ASEAN nations from 1980 to 2021. Results show cross-sectional dependence in all variables and confirm a long-term relationship within the EKC model. The fixed-effects estimator with bias correction is deemed the most suitable model. Findings indicate that GDPpc leads to decreased emissions, while the square of GDPpc contributes to increased emissions; however, the cubic term of GDPpc leads to decreased CO2 emissions, supporting the “inverted N” curve distribution of emissions across ASEAN nations proposed by the EKC theory. Additionally, the study reveals that higher percentages of female entrepreneurs are associated with increased carbon dioxide emissions, potentially due to increased efforts to support and develop female entrepreneurs. Conversely, a reduction in the gender gap in marriage, divorce, remarriage, and domestic violence leads to a shift away from entrepreneurial activities among women, positively impacting the environment.
We study the relationship between educational inequality, income inequality and economic transformation using data of 20 OECD countries from 1870 to 2016. Our results show that educational expansion policies increase income inequality in the long run, while having no significant effect on the short run. The structural transformation suggested by Kuznets (1955) explains this potentially counter intuitive result, where contemporary policy, given its focus on the importance of increasing participation and expanding education, must be predicated on the notion that education expansion should decrease income inequality. We quantify the impact of educational inequality on employment in different sectors and find that education expansion promotes the structural transformation towards a higher wage disparity sector. Particularly, expanding education increases the employment in the service sector and reduces the employment in the agriculture sector. Overall, our findings suggest that educational expansion policies play an important role in economic development via promoting the structural transformation, though this leads to higher income inequality. That education expansion is ineffective in reducing income inequality, and instead exacerbates it in the long run, requires significant policy revision despite the popularity of such policies.
This research examines the risk of failure in small and medium enterprises (SMEs) in Malaysia, using a dataset of 303 individual companies from 2005 to 2014. The study aims to provide a robust framework for quantifying SME risk and understanding the relationship between operational characteristics and risk. The methods available to calculate SME risk are the pure-play beta, accounting beta and probability of survival methods. We then use Gaussian mixture model (GMM) regression framework to examine the relationship between SME risk and firm characteristics. Our results show (1) having a high amount of debt does not necessarily make a SME riskier than its counterparts; (2) profitability significantly affects SME risk; and (3) size, firm age and business ethnicity are not significantly associated with SME’s risk in Malaysia. Our results also show that PP beta works better for risk measurement comparing with other risk measures. The study is important for a range of stakeholders, including government in relation to sustainable economic growth goals and other areas of public policy, as well as investors, customers, suppliers, employees, and society, as it aims to provide a robust framework for quantifying SME risk and avoiding avoidable business churn. The research draws on information from financial statements, owner ethnicity, age and gender, business location, shareholding, and items stored in the database, providing a rich panel of data for businesses over time.
Este artigo objetiva desenvolver um IDH genérico (IDHG) e testá-lo para os estados brasileiros no período de 1994 a 2016. Nesse contexto, propomos uma ampliação do modelo MRW, transformando o capital humano em três outras variáveis que representariam melhor o desenvolvimento humano: capital habilidade, capital biofísico e capital social. Os resultados empíricos mostram que o capital físico eleva a renda per capita, o capital habilidade incrementa o PIB per capita, assim como o capital biofísico (saúde) contribui para a elevação do crescimento da renda agregada.
Purpose
The interest in promoting diversity in corporate governance is increasing gender equality on boards. Even so, previous research shows that women are underrepresented on boards of directors. This study aims to explore how an increasing presence of women on boards reduces gender pay disparity among nonexecutive directors (NEDs).
Design/methodology/approach
This study explores how an increasing presence of women on boards reduces gender pay disparity among NEDs.
Findings
The results indicate that for boards to reduce the gender pay disparity among NEDs, women need to reach a critical mass of 33% of board members. In addition, this study finds that women’s presence on influential committees further reduces the gender pay disparity among NEDs.
Research limitations/implications
The study uses critical mass and social identity theories to explain the impact of women directors on NEDs’ remuneration in a sample of 365 companies listed on the London Stock Exchange over 16 years (1999–2015). The findings indicate the importance of reducing gender pay disparity as a tool to promote gender equality on boards.
Practical implications
This study provides evidence on the importance of corporations including gender diversity on board committees to reduce gender pay disparities at the board level.
Originality/value
In addition, this study finds that women’s presence on influential committees further reduces gender pay disparity among NEDs.
There has been a call on policy makers in the African continent to formulate and implement initiatives that help to realise some of the Sustainable Development Goals (SDGs), due to the low performance of the continent in terms of meeting the targets of the SDGs. Because of this, the study sought to investigate how banks’ financial outreach and intermediation contribute to sustainable development in the continent. Information was collected on 34 African economies for a period of 11 years spanning from 2010 to 2020. The study employed the two-step system generalised method of moments technique to estimate the findings. It was discovered that financial outreach has a significant positive and negative relationship with sustainable development, depending on the indicator used to measure outreach. On various dimensions, financial outreach had a negative influence on carbon dioxide emissions, a positive impact on economic sustainability, and an inverse relationship with social sustainability. It was also revealed that financial innovation has a significant negative link with sustainable development in Africa. Additionally, the findings revealed that both financial outreach and innovation serve as moderating variables in the finance/development nexus. The study recommends that governments and policy makers in various African countries work together with financial service providers to ensure fair, flexible, and alluring interest rates on loans to the underprivileged, disadvantaged ones in society, and vulnerable businesses to smooth their consumption and boost their businesses.
Bu çalışmada, ilişkili taraf işlemlerinin firma değerine etkisinde sürdürülebilirliğin aracı rolünün incelenmesine yönelik bir araştırma yapılmıştır. Çalışma, BİST 100 endeksinde işlem gören ve 2015-2021 yılları arasında düzenli olarak sürdürülebilirlik raporlaması yayımlayan 23 adet işletme şeklinde toplam 163 adet gözlemden oluşmaktadır. Çalışmada, dinamik panel tahmin yöntemlerinden biri olan Genelleştirilmiş Momentler Metodu kullanılmıştır. Çalışma sonuçlarına göre, ilişkili taraf borçlarının firma değeri üzerinde pozitif yönde, ilişkili taraf satışlarının ve alımlarının ise firma değeri üzerinde negatif yönde bir etkisi vardır. Ayrıca gerek sürdürülebilirlik gerekse sürdürülebilir sosyal sorumluluk faaliyetlerinin ilişkili taraf işlemleri ile firma değeri arasındaki ilişkiye aracılık ettiği tespit edilmiştir.
This paper investigates the impact of resource rents, specifically those from oil and gas, on education, with a focus on the role of institutional quality. Using a sample of 103 countries and a panel data analysis covering the period 1984–2020, the paper employs econometric threshold analysis to classify countries based on their institutional quality. The results indicate that in countries with weaker institutions, oil and gas rents have a negative impact on education levels. However, in countries with stronger institutions, the impact of resource rents on education is positive and significant. By adopting the threshold regression model, which considers the concept of threshold effects, this study contributes to the existing literature by examining the existence of an institutional quality threshold that captures the rich dynamics between resource rents and education. These findings have important policy implications, highlighting the heterogeneity in the role of resource rents in the economy, depending on the quality of political institutions.
This study analyzes the success level of countries in the period 1987–2018 as well as measure the factors affecting their success in economic growth. The dynamic panel Generalized Method of Moments (GMM) model is applied to analyze the data obtained from the World Bank database. Research results show that (i) there are differences in growth across economies; (ii) factors of foreign direct investment (FDI), international integration, and positive changes in institutional reform play a positive role in economic growth, while the level of macroeconomic instability has a negative impact on the growth in successful economies; and (iii) the attraction of external resources is very essential, especially in the early stages to transform the economy from a low-income level, or a lower middle-income level to a middle-income level or an upper middle-income level. However, in the long term, attracting external resources will be a “double-edged sword” if there is no measure to improve internal resources. Finally, we give some recommendations for countries to maintain high and sustainable growth.KeywordsEconomic growthThe success of economic growthPanel GMM
This study examines the effect of foreign capital inflow on domestic credit to the private sector in sub-Saharan Africa (SSA). Estimates based on the system-generalized method of moments, Pooled Mean Group and fully modified OLS estimators using panel data on 33 SSA countries from 1996 to 2019 establish the following results. First, foreign direct investment (FDI) positively affects domestic credit in the short and long run. Second, the effect of official credit on domestic credit is negative in the short and long run. Third, the US Treasury Bill rate negatively relates to domestic credit to the private sector in the short and long run. Improving policies to enhance the favourable effect of FDI on domestic credit may reduce borrowing from official sources to eliminate its undesirable effect.
We discuss instrumental variables (IV) estimation in the broader context of the generalized method of moments (GMM), and describe an extended IV estimation routine that provides GMM estimates as well as additional diagnostic tests. Stand-alone test procedures for heteroskedasticity, overidentification, and endogeneity in the IV context are also described. Copyright 2003 by Stata Corporation.
The authors examine alternative generalized method of moments procedures for estimation of a lognormal stochastic autoregressive volatility model by Monte Carlo methods. They document the existence of a trade-off between the number of moments, or information, included in estimation and the quality, or precision, of the objective function used for estimation. Furthermore, an approximation to the optimal weighting matrix is utilized to explore the impact of the weighting matrix for estimation, specification testing, and inference procedures. The results provide guidelines that help achieve desirable small sample properties in settings characterized by strong conditional heteroskedasticity and correlation among the moments.
When a model for panel data includes lagged dependent explanatory variables, then the habitual estimation procedures are asymptotically valid only when the number of observations in the time dimension (T) gets large. Usually, however, such datasets have substantial sample size in the cross-section dimension (N), whereas T is often a single-digit number. Results on the asymptotic bias (N → ∞) in this situation have been published a decade ago, but, hence far, analytic small sample assessments of the actual bias have not been presented. Here we derive a formula for the bias of the Least-Squares Dummy Variable (LSDV) estimator which has a approximation error. In a simulation study this is found to be remarkably accurate. Due to the small variance of the LSDV estimator, which is usually much smaller than the variance of consistent (Generalized) Method of Moments estimators, a very efficient procedure results when we remove the bias from the LSDV estimator. The simulations contain results for a particular operational corrected LSDV estimation procedure which in many situations proves to be (much) more efficient than various instrumental variable type estimators.
which the relationships are not exact, so that a set of ideal economic variables is assumed to be generated by a set of dynamic stochastic relationships, as in Koopmans [12], and the actual economic time series are assumed to differ from the ideal economic variables because of random disturbances or measurement errors. The asymptotic error variance matrix for the coefficients of one of the relationships is obtained in the case in which these relationships are estimated using instrumental variables. With this variance matrix we are able to discuss the problem of choice that arises when there are more instrumental variables available than the minimum number required to enable the method to be used. A method of estimation is derived which involves a characteristic equation already considered by Hotelling in defining the canonical correlation [10]. This method was previously suggested by Durbin [7]. The same estimates would be obtained by the maximum-likelihood limited
This paper investigates alternative generalized method of moments (GMM) estimation procedures of a stochastic volatility model with realized volatility measures. The extended model can accommodate a more general correlation structure. General closed form moment conditions are derived to examine the model properties and to evaluate the performance of various GMM estimation procedures under Monte Carlo environment, including standard GMM, principal component GMM, robust GMM and regularized GMM. An application to five company stocks and one stock index is also provided for an empirical demonstration.
This paper uses new statistical techniques and two new databases to reassess the relationship between economic growth and FDI. After resolving biases plaguing past work, we find that the exogenous component of FDI does not exert a robust, independent influence on growth.
This article develops a framework for efficient IV estimators of random effects models with information in levels which can accommodate predetermined variables. Our formulation clarifies the relationship between the existing estimators and the role of transformations in panel data models. We characterize the valid transformations for relevant models and show that optimal estimators are invariant to the transformation used to remove individual effects. We present an alternative transformation for models with predetermined instruments which preserves the orthogonality among the errors. Finally, we consider models with predetermined variables that have constant correlation with the effects and illustrate their importance with simulations.
This paper presents a statistical analysis of time series regression models for longitudinal data with and without lagged dependent variables under a variety of assumptions about the initial conditions of the processes being analyzed. The analysis demonstrates how the asymptotic properties of estimators of longitudinal models are critically dependent on the manner in which samples become large: by expanding the number of observations per person, holding the number of people fixed, or by expanding the number of persons, holding the number of observations per person fixed. The paper demonstrates which parameters can and cannot be identified from data produced by different sampling plans.
Monte Carlo studies have shown that estimated asymptotic standard errors of the efficient two-step generalized method of moments (GMM) estimator can be severely downward biased in small samples. The weight matrix used in the calculation of the efficient two-step GMM estimator is based on initial consistent parameter estimates. In this paper it is shown that the extra variation due to the presence of these estimated parameters in the weight matrix accounts for much of the difference between the finite sample and the usual asymptotic variance of the two-step GMM estimator, when the moment conditions used are linear in the parameters. This difference can be estimated, resulting in a finite sample corrected estimate of the variance. In a Monte Carlo study of a panel data model it is shown that the corrected variance estimate approximates the finite sample variance well, leading to more accurate inference.
Estimation of the dynamic error components model is considered using two alternative linear estimators that are designed to improve the properties of the standard first-differenced GMM estimator. Both estimators require restrictions on the initial conditions process. Asymptotic efficiency comparisons and Monte Carlo simulations for the simple AR(1) model demonstrate the dramatic improvement in performance of the proposed estimators compared to the usual first-differenced GMM estimator, and compared to non-linear GMM. The importance of these results is illustrated in an application to the estimation of a labour demand model using company panel data.
This paper investigates the impact of stock markets and banks on economic growth using a panel data set for the period 1976–1998 and applying recent generalized-method-of moments techniques developed for dynamic panels. On balance, we find that stock markets and banks positively influence economic growth and these findings are not due to potential biases induced by simultaneity, omitted variables or unobserved country-specific effects.
The effect of varying the number of moment conditions used on the finite sample properties of the Sargan test of overidentifying restrictions is investigated in the context of dynamic panel data models. The use of too many moment conditions causes the test to be undersized and to have extremely low power. Interestingly, the Exponential Tilting Parameter test is found generally to possess worse size properties than the Sargan test in this context.
Using a Monte Carlo approach, we find that the bias of LSDV for dynamic panel data models can be sizeable, even when T=20. A corrected LSDV estimator is the best choice overall, but practical considerations may limit its applicability. GMM is a second best solution and, for long panels, the computationally simpler Anderson–Hsiao estimator performs well.
This paper presents specification tests that are applicable after estimating a dynamic model from panel data by the generalized
method of moments (GMM), and studies the practical performance of these procedures using both generated and real data. Our
GMM estimator optimally exploits all the linear moment restrictions that follow from the assumption of no serial correlation
in the errors, in an equation which contains individual effects, lagged dependent variables and no strictly exogenous variables.
We propose a test of serial correlation based on the GMM residuals and compare this with Sargan tests of over-identifying
restrictions and Hausman specification tests.
this paper and John Ham, David Hendry and members of the econometrics group at the London School of Economics for their useful comments on an earlier draft
We use a Monte Carlo approach to investigate the performance of several different methods designed to reduce the bias of the estimated coefficients for dynamic panel data models estimated with the longer, narrower panels typical of macro data. We find that the bias of the least squares dummy variable approach can be significant, even when the time dimension of the panel is as large as 30. For panels with small time dimensions, we find a corrected least squares dummy variable estimator to be the best choice. However, as the time dimension of the panel increases, the computationally simpler Anderson-Hsiao estimator performs equally well.
The objective of this paper is to provide some stylized facts on the links between current account deficits and a broad set of economic variables proposed by the literature. In order to accomplish this task, we complement and extend previous empirical research by (1) using a large and consistent macroeconomic data set on current account deficits and other national income variables, (2) focusing on developing economies by drawing on a panel data set consisting of 44 developing countries and annual information for the period 1966-94, (3) adopting a reduced-form approach, instead of holding to a particular structural model, (4) distinguishing between within-country and cross-country effects, and (5) employing a class of estimators that controls for simultaneity and reverse causation. Some of our findings are the following. (i) Current account deficits are moderately persistent. (ii) A rise in domestic output growth generates larger current account deficits. (iii) Shocks that increase the terms of trade or appreciate the real exchange rate are linked with higher current account deficits. And (iv) either higher growth rates in industrialized economies or larger international interest rates reduce the current account deficit in developing economies.
This paper studies estimators that make sample analogues of population orthogonality conditions close to zero. Strong consistency and asymptotic normality of such estimators is established under the assumption that the observable variables are stationary and ergodic. Since many linear and nonlinear econometric estimators reside within the class of estimators studied in this paper, a convenient summary of the large sample properties of these estimators, including some whose large sample properties have not heretofore been discussed, is provided.
[eng] Transportation costs and monopoly location in presence of regional disparities. . This article aims at analysing the impact of the level of transportation costs on the location choice of a monopolist. We consider two asymmetric regions. The heterogeneity of space lies in both regional incomes and population sizes: the first region is endowed with wide income spreads allocated among few consumers whereas the second one is highly populated however not as wealthy. Among the results, we show that a low transportation costs induces the firm to exploit size effects through locating in the most populated region. Moreover, a small transport cost decrease may induce a net welfare loss, thus allowing for regional development policies which do not rely on inter-regional transportation infrastructures. cost decrease may induce a net welfare loss, thus allowing for regional development policies which do not rely on inter-regional transportation infrastructures. [fre] Cet article d�veloppe une statique comparative de l'impact de diff�rents sc�narios d'investissement (projet d'infrastructure conduisant � une baisse mod�r�e ou � une forte baisse du co�t de transport inter-r�gional) sur le choix de localisation d'une entreprise en situation de monopole, au sein d'un espace int�gr� compos� de deux r�gions aux populations et revenus h�t�rog�nes. La premi�re r�gion, faiblement peupl�e, pr�sente de fortes disparit�s de revenus, tandis que la seconde, plus homog�ne en termes de revenu, repr�sente un march� potentiel plus �tendu. On montre que l'h�t�rog�n�it� des revenus constitue la force dominante du mod�le lorsque le sc�nario d'investissement privil�gi� par les politiques publiques conduit � des gains substantiels du point de vue du co�t de transport entre les deux r�gions. L'effet de richesse, lorsqu'il est associ� � une forte disparit� des revenus, n'incite pas l'entreprise � exploiter son pouvoir de march� au d�triment de la r�gion l
This paper considers estimation and testing of vector autoregressio n coefficients in panel data, and applies the techniques to analyze the dynamic relationships between wages an d hours worked in two samples of American males. The model allows for nonstationary individual effects and is estimated by applying instrumental variables to the quasi-differenced autoregressive equations. The empirical results suggest the absence of lagged hours in the wage forecasting equation. The results also show that lagged hours is important in the hours equation. Copyright 1988 by The Econometric Society.
Does Foreign Direct Investment Accelerate Economic Growth? in T Does foreign direct investment promote development
- M Carkovic
- R Levine Moran
- E M Graham
- M Blomström
Carkovic, M., and R. Levine. 2005. Does Foreign Direct Investment Accelerate Economic Growth? in
T.H. Moran, E.M. Graham, and M. Blomström. Does foreign direct investment promote development?
Washington, DC: Institute for International Economics and Center for Global Development.
Enhanced routines for instrumental variables/generalized method of moments estimation and testing
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- F Hayashi
Hayashi, F. 2000. Econometrics. 1st ed. Princeton, NJ: Princeton University Press.
Classical Econometrics
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Ruud, P.A. 2000. Classical Econometrics. New York: Oxford University Press.